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incorporated petitioner as a New York professional corporation.3
Since petitioner’s incorporation, Ms. Felton has been its sole
shareholder, holding 100 percent of the corporation’s shares. At
all relevant times, the sole activity engaged in by petitioner
was the rendering of legal services. Since 1989, Ms. Felton has
been petitioner’s sole practitioner providing those services.
Petitioner employs a minimal secretarial and/or clerical staff.
Since 1987, petitioner’s certified public accountant,
Raymond Saylor (Mr. Saylor), has prepared petitioner’s corporate
income tax returns. For the years in issue, Mr. Saylor
calculated petitioner’s tax based on the graduated tax rate for
corporations under section 11(b)(1).4 In addition, Mr. Saylor
prepared a Form 7004, Application for Automatic Extension of Time
to File Corporation Income Tax Return (extension request), for
petitioner’s calendar year 2002 income tax return and delivered
3 Attorneys are not permitted to incorporate as traditional
corporations under New York State law. See N.Y. Jud. Law sec.
495(1) (McKinney 2006); see also In re Co-operative Law Co., 92
N.E. 15 (N.Y. 1910). Rather, to incorporate a law firm, the
professional corporation provisions must be followed. See N.Y.
Bus. Corp. Law sec. 1503 (McKinney 2006).
4 Sec. 11(b)(1) imposes a tax on the taxable income of
every corporation as follows:
(A) 15 percent of so much of the taxable income as does
not exceed $50,000,
(B) 25 percent of so much of the taxable income as
exceeds $50,000 but does not exceed $75,000,
(C) 34 percent of so much of the taxable income as
exceeds $75,000 but does not exceed $10,000,000, and
(D) 35 percent of so much of the taxable income as
exceeds $10,000,000.
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